Why does nobody in Bitcoin ever talk about "Unit of Account"?
Take a look at this chart.
Two things should be pretty striking about it. In the 12 months running up through October 2021, the USD lost almost 1% of its purchasing power in a single month.. twice. Over the full period, it lost 6.2% of its purchasing power. What does this mean for those holding HBD?
In the crypto space, there is much debate about "Store of Value" and "Medium of Exchange", two of the primary functions of money, as if they are inherently opposed to each other. In truth, all three primary functions are required. That includes "Unit of Account", the forgotten sibling among three. Unit of account means that you can denominate the prices of consumer goods, your salary, the price of a stock and all other prices according to that currency, as well as a company, household or country's financial accounting.
High inflation undermines two of the three primary functions of money. If you cannot reliably extract the value you put into money at a later date, it is not a good store of value. If you have to frequently reprice goods because the money itself has less value, it is not a good unit of account.
HBD is pegged to the USD. That means everyone who held HBD outside of savings effectively lost 6.2% of their purchasing power over that time from the USD peg alone (let alone failures to maintain the peg at times).
Well, at least people who held their HBD in savings didn't lose value, right? They gain 10% APR in interest, which is higher than inflation appears to be right now. It's true, but only at the cost of the other two functions of money. HBD in savings must wait at least 3 days before it can be used to purchase something - it is temporarily not a medium of exchange. And even if you are not losing purchasing power, goods still have to be continually repriced when there is high inflation.
There is some level of inflation where unit of account completely breaks down. If you imagine USD CPI inflation at 50% or 100% in a year, having a salary denominated in USD (or HBD) is highly impractical, and so is pricing goods. Even if HBD savings fully compensates with interest, Unit of Account is lost as a function of money. In fact, it is the same reason in reverse why nobody's salary is denominated in Bitcoin - an employer cannot take the risk that the cost of the salary will rise and an employee can't take the risk that it will collapse. Bitcoiners have always argued about Store of Value and Medium of Exchange, because both sides know it cannot possibly achieve the third primary function of money.
HBD has the potential to fulfill all three, but not if it is permanently pegged to the dollar. A low level of inflation doesn't undermine Unit of Account, but there is some level of inflation where we can surely all agree that it no longer works.
10%? 20%? 50%? 1000%? 41.9 quadrillion percent?
The Post-World War II hyperinflation of Hungary held the record for the most extreme monthly inflation rate ever – 41.9 quadrillion percent (4.19 × 1016%; 41,900,000,000,000,000%) for July 1946, amounting to prices doubling every 15.3 hours. By comparison, on 14 November 2008, Zimbabwe's annual inflation rate was estimated to be 89.7 sextillion (1021) percent.[23] The highest monthly inflation rate of that period was 79.6 billion percent (7.96 × 1010%; 79,600,000,000%), and a doubling time of 24.7 hours.
At some level of USD inflation, we will need to repeg HBD. The question the community needs to ask, now or when inflation gets even worse, is how high USD inflation are we willing to tolerate for the Hive monetary token?
